Interest Cap on Loans Offered by Lending and Financing Companies

On 01 March 2022, the Securities and Exchange Commission (SEC) issued Memorandum Circular No. 3, series of 2022 on the implementation of the ceiling on interest rates and other fees charged by Lending Companies (LCs), Financing Companies (FCs) and their Online Lending Platforms. In a nutshell, this circular puts a cap on the interests and other fees to be imposed on certain type of loans.

The salient points of the circular are as follows:

  1. This cap on interest and other fees shall only be applicable to:
  • unsecured, general-purpose loans that do not exceed the amount of Php10,000.00. General-purpose loans refer to loans where the proceeds can be used for any type of expenses. These expenses may include, but are not limited to, payment of bills, purchase of appliances or gadgets and other similar expenses for personal consumption or small business need; and
  • a loan tenor of up to four (4) months that are entered into, restructured or renewed beginning 03 March 2022. (the “Covered Loan”)
  1. The applicable ceiling/s on interest rates and other fees on the Covered Loans shall be as follows:
  • Nominal Interest Rate (NIR) ceiling equivalent to 6 percent per month (~0.2 percent per day). NIR refers to the contractual rate or the price paid for the use of money and is expressed as a percentage of the total amount borrowed without considering other fees and charges.
  • Effective Interest Rate (EIR) ceiling equivalent to 15 percent per month (~0.5 percent per day), which shall include the Nominal Interest Rate along with all other applicable fees and charges (i.e., processing fees, service fees, notarial fees, handling fees and verification fees, among others), but excluding fees and penalties for late payment and non-payment. EIR refers to the total nominal interest paid plus other fees and charges, excluding penalty and late payment fees, expressed as the rate that exactly discounts estimated future cash flows throughout the life of the loan to the net amount of loan proceeds;
  • A cap on penalties for late payment or non-payment at 5 percent per month on outstanding scheduled amount due;
  • A total cost cap of 100 percent of total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of time the loan has been outstanding.
  1. Submission of an Impact Evaluation Report on or before 15 January each year beginning 2023 using the form prescribed by SEC.
  2. Submission of an amended Business Plan indicating the company’s loan products and services as well as the applicable pricing parameters, which must be compliant with the above-mentioned ceiling, on or before 05 May 2022.
  3. Failure of the LCs and FCs to comply with ceiling parameters, the submission of the impact evaluation form and the submission of the amended Business Plan shall be subject to penalties.

You may access the full circular at

This article is for general information only and is not intended nor should be construed as a substitute for legal advice on any specific matter. A professional legal advice is still necessary to an actual or particular issue.

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